Wal-Mart wins: Judge overturns Maryland ruling

CHICAGO (MarketWatch) -- A U.S. District Court judge gave Wal-Mart Stores Inc. a big win on Wednesday when he overturned a Maryland law linked to higher spending on employee health care.

The fair-share act, which was expected to go into effect in January, required large Maryland companies to allocate as much as 8% of their payroll to health-care costs. If they chose not to, they would have to pay the difference between the required amounts and the actual amounts to a fair-share health-care fund, a notion referred to as a "payroll tax."

Wal-Mart
WMT, -0.58%
shares finished the session at $44.20 up 2.4% at $44.20.

The act has been tagged the Wal-Mart health-care law because Wal-Mart was the only employer in Maryland that would have been affected.

In reversing the act, federal Judge J. Frederick Motz wrote that the law imposes "legally cognizable injury" upon the world's largest retailer because it would have required Wal-Mart to track and fund benefits for its Maryland employees in a different manner than its other U.S. employees, according to his opinion accompanying the ruling. Wal-Mart insures about 1 million people nationwide.

Motz also wrote that the law violated the "fundamental purpose" of the Employee Retirement Income Security Act, or ERISA, that permits multi-state employers to keep national health and welfare plans, provide uniform nationwide benefits and permit uniform national administration.

The law was contested by the Retail Industry Leaders Association, a fledgling group of national chain-store representatives, including Wal-Mart. In its arguments, RILA said it would "adamantly oppose" legislative efforts "that would oppose costly health-care mandates on the retail industry, particularly mandates that disproportionately impact a specific segment of the industry," according to its Website. RILA contended that the law was aimed squarely at Wal-Mart.

Not surprisingly, reactions were mixed after the ruling. Wal-Mart was pleased with the decision, saying that the law "did nothing" to control spiraling health-care costs or to improve access to benefits. "It's no wonder that 28 other states rejected this as bad policy," the company said in a written response.

RILA praised the ruling for striking at similar bills under consideration. "The decision sends a clear signal that employer health plans are governed by federal law, not a patchwork of state and local laws," RILA President Sandy Kennedy said.

Wal-Mart critics disparaged the ruling. "The District Court's decision unfortunately ignores legal and public support for requiring large, profitable corporations to pay their fair share for health care," said Chris Kofinis, a spokesman for WakeUpWalMart.com, a grassroots activist group.

Andrew Grossman, executive director of another activist group called Wal-Mart Watch, said the battle is not over.

"Today's decision is not the final word on this piece of legislation and we remain optimistic that there will be an appeal," he said. It's unclear whether the state will appeal the ruling.

The decision was closely watched by retailers -- who hire a disproportionate share of part-time employees -- fearful that such a law would put a burdensome financial albatross on them. At the same time, a number of legislative bodies, insurance agencies and public health groups, eager to uncover new ways to pay for the high costs of health care, were hoping that the legislation would stick.

In Maryland -- as in other states -- the law was considered an effort to pare down the number of people on public rolls such as Medicaid.

In his ruling, Motz admonished the state's contention that requiring Wal-Mart to pay the difference through a penalty tax of sorts was a "choice" at all.

"While repeatedly emphasizing that employers have a 'choice,' the (state) does not offer a single reason why an employer would pay the state rather than generate good will with its work force by increasing its employees' benefits," Motz wrote.

Motz, however, offered a caveat to his thinking: "Of course, I am expressing no opinion on whether legislative approaches taken by other states to the problems of health-care deliver and its attendant costs would be preempted by ERISA," he wrote, noting Massachusetts recently enacted law that "arguable has only incidental" impact on ERISA.

"In light of what is generally perceived as a national health-care crisis, it would seem that to the extent ERISA allows, it is strongly in the public interest to permit states to perform their traditional role of serving as laboratories for experiment in controlling the costs and increasing the quality of health care for all citizens," he said.

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